I recently read a LinkedIn post by two Wall Street Journal reporters noting that workers in their late 30s now hold more of their 401(k)s in stocks than they did a decade ago. They also pointed out that Target Date Funds are leaning even more heavily toward equities than in the past, with research from Vanguard and Morningstar backing this up.
They went on to say that both institutions and individual investors have shifted toward stocks in search of growth. That has worked well in today’s bull market, but it raises the risk of larger losses compared to a traditional 60% stock / 40% bond portfolio. Historically, 60/40 has been the standard for smoothing the ride.
Yet there are exceptions—most notably in 2022, when stocks and bonds both fell, and in the 1973–74 bear market, when rising interest rates crushed bond prices along with stocks.
But with lower volatility has come lower long term returns when compared with an all stock portfolio.
What the Data Shows
To compare an all stock allocation to a 60/40, I looked at three of the worst times to invest a lump sum—just before major bear markets began—and measured how a 100% stock portfolio (S&P500) fared against a 60/40 mix (S&P 500 + bonds):
· Jan 1973 to Mar 2009 – Three of the five worst bear markets and 9/11. The S&P 500 outperformed by 2% annually over the long term, but it took nine years for stocks to catch up to the steadier 60/40 mix.
· Apr 2000 to today – Two severe bear markets back-to-back. Stocks eventually pulled ahead but took 13 years to recover relative to the 60/40 allocation.
· Oct 2007 to today – The S&P ultimately outperformed, but only after six years of lagging the 60/40.
The lesson? Stocks win in the long run, so best for your longer term goals, but limiting volatility matters when your goals are nearer-term.
Not only are the examples above the worst possible buying opportunities, but, in addition, most people don’t invest one lump sum as I illustrated above. With retirement accounts, you keep adding regularly. That means a plan participant likely experience some of the growth in advance of the dates used above, and kept buying during downturns, lowering your average cost (dollar-cost averaging). It’s one of the best defenses against bad timing.
The real danger comes from emotions, not from the actual allocation:
1. Selling at the wrong time. Investors often panic, pull out after a drop, and get back in too late. To avoid this:
o Stay focused on the long term.
o Limit how often you check balances.
o Don’t let scary headlines drive your decisions.
o Seek professional guidance before making big changes.
2. Mismatching your allocation to your timeline.
o 15+ years: growth stocks.
o 10+ years: dividend stocks.
o 5–10 years: bonds.
o 1–4 years: cash, CDs, short-term bonds.
o Some prefer an annuity for guaranteed lifetime income.
Why This Matters
With pensions largely gone, retirement savings now rely on 401(k)s, 403(b)s, and IRAs. Contributions are capped, and employer matches don’t replace the generosity of old-style pensions. That means today’s workers often have to take more responsibility—and more risk—to meet their retirement goals.
Being conservative may feel safe, but it has its own dangers. You may not accumulate enough to meet your goals—or even your basic needs. Studies show as many as 45% of retirees, and 55% of women, risk running out of money.
Conclusion
The reporters seem concerned with a plan participant in their late 30’s holding 88% of the their 401k in stock. Although there may be other conditions, I think people more than 15 years from their target date, have 80, 90 or even 100% of their 401k in stocks has shown historically to be appropriate.
A 60/40 portfolio can reduce volatility, but it isn’t a magic shield. Stocks have historically outperformed over the long run, yet the key to success is not the “perfect” mix—it’s discipline, patience, and matching how your money is invested to your goals.
Markets will rise and fall. What matters most is staying invested, allocating wisely for your time horizons, and avoiding emotional mistakes.
Next week: Should you rely on 60/40, allocation funds, target-date funds, or something else?
Key Takeaways
· A 60/40 portfolio smooths the ride, but stocks win long term.
· The biggest danger is selling too soon or mismatching investments with your cash-flow needs.
· Success comes from patience, discipline, and aligning your portfolio with your goals.
FAQs
Q: Is 60/40 still a good strategy?
It helps reduce risk but doesn’t always protect you—like in 2022. Over long periods, stocks return more.
Q: Do bonds always rise when stocks fall?
No. In 1973–74 both fell. In 2000–02 and 2007–09, bonds rose as rates dropped, cushioning losses.
Q: Why do investors lose money?
Mostly from emotions—selling after declines and buying back too late. Staying invested avoids this trap.
Q: Can you time the market?
Rarely. You’d have to get both the sell and buy exactly right. Most investors don’t.
Q: How should I invest based on my timeline?
· 1–4 years: cash, CDs, short-term bonds
· 5–10 years: bonds
· 10–15+ years: stocks
Q: Is it safe to own stocks if I’m 15 years from retirement?
Yes—if you stay invested. Even in retirement, most people have 20+ years to plan for, so stocks remain essential.
Footnotes
The S&P 500 Index is a market-capitalization-weighted index of 500 of the largest publicly traded U.S. companies. It is widely regarded as a benchmark for the overall U.S. stock market and is not directly investable, though many mutual funds and ETFs seek to track its performance.
The Bloomberg U.S. Aggregate Bond Index (formerly the Lehman Aggregate Bond Index) is a broad measure of the U.S. investment-grade bond market. It includes U.S. Treasury securities, government-related bonds, corporate bonds, mortgage-backed securities, and asset-backed securities. Like the S&P 500, it is not directly investable, but mutual funds and ETFs seek to track its performance.
Past performance is not a guarantee of future results. All investments involve risk, including the possible loss of principal. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.